20 Possible Reasons Behind Company’s Share Buyback Offer

Possible Reasons Behind Company’s Share Buyback Offer Women investor thinking about the different reasons behind buyback offer.

(4) Generating Long Term Demand Of Shares In The Market

It is one of the most significant goals of a company behind shares buyback strategy. Individual stocks are known to trade depending on the supply and demand of shares in the market.

When the demand of shares is high as compared to supply then the stock price is likely to increase. Similarly, when the supply of shares is low as compared to the demand then also stock price is likely to increase.

Shares buyback strategy is a great way to affect supply-demand dynamics of shares of underlying company. As the company repurchases its own shares, the supply of shares in the market gets reduced without affecting the demand.

As a result, the share price is likely to appreciate due to automatic reduction of supply. Finally, stock price is likely to be increased or affected as long as buyback operations continue.

Therefore, when a shares buyback is announced, stock prices tend to shoot up. It is due to increased participation of investors to take the advantage of higher demand & lower supply.

Thus, when shares buyback is done from open market then it greatly adds to the long-term demand for shares of underlying company.

[Read Also: 10 Fastest Ways Big Investors Spread Rumors In Stock Markets]

(5) Preventing Hostile Takeover Of Underlying Company

It is one of the most important goals of a company behind shares buyback strategy. Business takeover is the act of buying one company (the target) by another company (the acquirer, or bidder).

It is often considered as the beauty of corporate world. But, every takeover is not friendly in nature.

Sometimes, hostile takeovers may also occur. Hostile takeover allows a bidder to takeover a target company even when its management is not willing to agree for the same.

Generally, companies that have accumulated excessive amounts of cash on the balance sheet are more attractive targets for takeover. It is due to the fact that accumulated cash of the company can be used to pay down the debt incurred to carry out the hostile takeover.

In this situation, shares buyback strategy helps to reduce accumulated cash into a lean cash position. Simultaneously, shares buyback boost the stock price to a much higher level.

As a result, making a takeover becomes more expensive for the hostile bidders. Thus, shares buyback plays a great role in minimizing the possibility of hostile takeovers.

Image Source

Recommended Posts

More From GetUpWise

About Editing Staff
At GetUpWise, we are a team of professional writers from different areas of subjects. We are conducting thorough research on each & every topic from highly reputed sources before writing any piece of article. Once research is done, we try our best efforts to provide informative piece of articles in an easy to understand manner. It is something that is extremely essential to meet our goal while reaching & offcourse building a strong online community. We do update our articles from time to time in order to provide the most latest information quickly. Thus, our articles can be used as a "way to gain smartness".

Leave a comment

Your email address will not be published.



This site uses Akismet to reduce spam. Learn how your comment data is processed.

Get Instant Access To GetUpWise Posts

Subscribe Us

Please do verify your email address by clicking a link sent to your email.

More in Stocks & Mutual Funds
Best Trading Strategies To Make Money In Rights Issue
6 Best Trading Strategies To Make Money In Rights Issue

(4) Selling Partial Or All Of The Rights To Other Investors In Renounceable Rights Issue It is one of the...